The Future of the FLSA Overtime Rule

This time last year, many businesses were preparing for the impending change to the Fair Labor Standards Act (FLSA) overtime rule. That rule was expected to shake up industry, forcing employers to either pay more people overtime, or increase salaries so their employees could continue to qualify as exempt from FLSA’s mandates. But, as many of our readers know, a federal district court stopped the rule from going into effect by issuing a nationwide injunction back in November 2016. In the months since, we have a new President with a new agenda for the Department of Labor, the district court’s ruling has been appealed, and the overtime rule has hung in legal limbo. Do you still need to worry about the Obama-era rule? This post provides an update on the legal proceedings surrounding the FLSA overtime rule and what the change in administration means for the future of the rule.

Background on the Overtime Rule

The Fair Labor Standards Act (FLSA) requires most employers to pay minimum wage and overtime for hours worked over 40 in a given week. But there are several exemptions to the overtime requirement. The most common exemptions are the so-called “white collar” exemptions—the executive, administrative, and professional exemptions—which permit employers to exempt certain employees from FLSA’s requirements if they meet the following test: (1) the employee performs certain job duties (i.e., meets the “duties test”); (2) the employee is paid on a salary basis; and (3) that salary meets a minimum threshold. The overtime rule was intended to increase that minimum salary threshold from $455 per week ($23,660/year) to $913 per week ($47,476/year).

The rule was set to go into effect on December 1, 2016. But a legal challenge stopped the rule in its tracks right before Thanksgiving (no doubt leaving some thankful and others not). A federal judge in Texas issued a nationwide preliminary injunction on the rule, finding that the Department of Labor (DOL) had likely overstepped its rulemaking authority when it issued the rule.1

Overtime Rule Legal Challenge: On Appeal to the Fifth Circuit

After the rule was enjoined in the district court, the DOL appealed that ruling to the U.S. Court of Appeals for the Fifth Circuit. Briefing started, with the DOL filing an Opening Brief, and the challengers filing their Answer. But in the interim, Donald Trump became President and with him, a new Labor Secretary was appointed. In late April, Alex Acosta was confirmed to the position. Many expected that the Trump administration would switch gears and drop the appeal. But something different occurred.

The DOL filed its reply and supported its legal authority to issue the rule in the first place. Recall that the main reason that the judge below issued the injunction was his finding that the federal agency had likely overstepped its rule-making authority in issuing a salary test that was not consistent with the statute. Technically, the FLSA itself only refers to the duties test to qualify for an exemption, but the DOL has been requiring the corresponding salary threshold for decades through regulations. The Trump DOL challenged the district court’s finding on this point and asserted its power to require and set a salary threshold. But it has indicated, as explained below, that it does not want to defend the rule in its current form.

New Administration, New Priorities: The Trump Administration’s Take on the Rule

While the Trump DOL continued to defend its power to institute a salary threshold in connection with the white-collar exemptions, it no longer wants to support the Obama-era rule. And it has taken actions that suggest it essentially wants to start from scratch on a new rule. In late July, the DOL issued a request for information calling for public input and comment in order to revise the regulations that set the salary thresholds for the exemptions.2 This RFI suggests that while it is likely that the salary threshold could change sometime in the future, it will probably not increase to the level that was originally intended by the Obama-era overtime rule anytime soon.

The District Court Rules on the Merits: The Overtime Rule is Unlawful

The matter was complicated even further by the fact that the issue before the appellate court was only the ruling on the preliminary injunction, and the district court had not actually ruled on the merits of the challenge. In litigation, a party may seek a preliminary injunction where it can prove to the district court (among other things) that it has a likelihood of success on the merits; if it prevails, an injunction is put into place (which is what occurred here). Then, the parties can actually litigate the issue in full without worrying about the law going into effect and causing harm in the meantime. Here, the merits case had not been stayed pending the appeal, and it was possible that the district court could rule on a motion for summary judgment in front of it before the appellate court would have a chance to issue a ruling on the preliminary injunction order. And that is exactly what just occurred.

On August 31, 2017, the same district court that issued the nationwide preliminary injunction ruled that the overtime rule was unlawful.3 The Court concluded that the white collar exemptions have only one statutory requirement—that they be for bona fide administrative, executive, and professional employees. The DOL cannot make this statutory requirement a nullity by requiring a salary test so high that it disqualifies employees who would otherwise be exempt under the duties test.

In response to the district court’s decision, the Trump DOL requested that that the Fifth Circuit drop the appeal because the issue before that court was now moot. The Fifth Circuit dismissed the appeal on September 6, 2017. Given the DOL’s positions, it seems unlikely that it will appeal the district court’s decision on the merits, and the next steps are likely to turn to a new rule.

Conclusion: Saying Goodbye to the Obama-Era FLSA Overtime Rule

With all the legal turmoil and uncertainty around the FLSA overtime rule, it has been hard for employers to know how to react. With the district court officially ruling that the Obama-era rule is invalid and cannot be enforced, and the new administration signaling an interest in getting a more feasible rule on the books, a new rule is likely to be the next step. That process, however, takes time, likely a couple of years. For now, the status quo will be maintained until the DOL takes further action. Employers should keep tabs on these developments and continue to follow the law as it currently stands.

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